Cayman tops ranking of money hideouts

Pedro Gonçalves
Cayman tops ranking of money hideouts

Cayman is now the top enabler of financial secrecy in the world, according to the findings from the Tax Justice Network's Financial Secrecy Index 2020.

In second and third place respectively, were the United States and Switzerland. The Tax Justice Network has called on policymakers to prioritise sanctions against Cayman and the other two countries. This was the first time since 2011 that Switzerland did not take the first place on the ranking.

The Tax Justice Network's Financial Secrecy Index ranks jurisdictions by their financial sector transparency and the scale of their offshore financial activities. It ranks each country based on how intensely the country's legal and financial system allows wealthy individuals and criminals to hide and launder money extracted from around the world.

Cayman has increased its supply of financial secrecy to the world by 24%, moving it up from third on the 2018 index to first on the 2020 index"

The index ranks jurisdictions based on their role globally in enabling secretive banking, anonymous shell company ownership, anonymous real estate ownership or other forms of financial secrecy transparency, which in turn facilitates money laundering, tax evasion and huge offshore concentrations of illicit and untaxed wealth, estimated at $21trn to $32trn globally.

It is the first time that Cayman tops this rank, something which happened on the same day that Cayman became the only UK Overseas Territory to be blacklisted by the European Union

"Cayman has increased its supply of financial secrecy to the world by 24%, moving it up from third on the 2018 index to first on the 2020 index. The deterioration is a result of Cayman increasing the volume of financial services it provides to non-residents by 21%," the Tax Justice Network said.

"It is also partly due to Cayman's secrecy score increasing by 4, from 72 to 76 out of 100, after Cayman failed to keep up with methodological updates to the Financial Secrecy Index that reflect the evolving nature of the financial secrecy landscape. The growth of Cayman's global role points to major risks emanating from its hedge fund industry, which uses companies, trusts and limited partnerships that are cloaked in secrecy," the report added.

Challenging the TJN's findings, the chief officer in the financial services ministry, Dax Basdeo, said Cayman's standards of transparency are based upon recognised global standards, despite the jurisdiction's blacklisting Tuesday by the European Union.

"Unfortunately, the TJN's methodology remains flawed, as does their definition of regulatory standards, which are not recognised by any global standard setting body," Basdeo said. "We do not work in ‘secret', rather we continue to work cooperatively with tax and law enforcement authorities around the world, as is reflected by independent assessments of our regime."

Aside from the continuous changes to the legal regime, Basdeo claimed that Cayman's "transparency and international cooperation frameworks remain in line with evolving global standards. The TJN ignores that the Cayman Islands meets the global standards."

The United States is now one the world's most complicit country in helping individuals hide money from the rule of law, coming in at number two. Also on the top 10 list are Hong Kong, Singapore, Luxembourg, Japan, the Netherlands, the British Virgin Islands and the United Arab Emirates.

Hong Kong and Singapore have fared marginally better in preventing illicit and illegitimate or abusive financial flows compared to 2018, but have maintained their rankings.

Australia continues to host significant quantities of illicit funds from outside the country and is not doing enough to counter money laundering and tax avoidance.

The UK edged closer to the top 10 most secretive financial systems in the world. It ranked 12th out of 133 countries, having shot up from its previous slot at 23rd. While the UK was likely to diverge from EU regulations on trade in financial services as a result of Brexit, the study claimed this could be good news for the rest of the EU. It meant the UK could not block anti-tax haven laws from being adopted in Brussels, and would not be in a position to defend the financial practices of its crown dependencies and overseas territories such as the Cayman Islands, as it has done in the past, the Guardian reported.


Subscribe to International Investment's free, twice-daily, newsletter